Existing Whole of Life policy into Trust

Good morning,

Does anyone know whether assigning an existing WOL policy (with a surrender value) would give rise to a CLT/PET if retrospectively assigned into Trust?

Cheers :slight_smile:

It might do.

The correct answer will depend on four variables.

What type of trust is it?
What is the surrender value?
What is the insured’s life expectancy?
Will the donor’s gift exceed their nil rate band?

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For a WOL policy the transfer is the greater of:
a) the market value of the plan (normally the surrender value but as Tony says if life expectancy is low could be higher) and
b) the total premiums paid to date.

Whether it is a PET or CLT depends on whether the trust is absolute or discretionary. However, if the plan is a joint life first death and on first death the benefits revert to settlor, irrespective of the type of trust used, the transfer will be a CLT.

The transfer could also be exempt if the client hasn’t used the £3,000 annual exemption and the value of the transfer is within this. If the client hasn’t used last years could have a £6,000 exemption and if the plan is joint this could be as high as £12,000.
Kim Jarvis

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What on earth does “retrospectively” mean? The transfer of any asset can have an agreed degree of retroactive effect as between the parties but it cannot treat legal rights and obligations created by it as having occurred at an earlier date.

A classic example is a Deed (or other instrument) of Variation of a Will or intestacy. If executed within 2 years of death its effect for IHT and CGT can be treated as occurring on death but for all other tax and legal purposes it takes effect on the date of execution. That is also true for IHT and CGT if for any reason the “reading back” provisions do not operate. There is no comparable provision for income tax. The parties are perfectly entitled to deal as they wish with the destination of income arising between death and the variation but it will be taxed on whoever was entitled to it when it arose and directing it away from that person needs to be a decision made on that understanding.

A life policy cannot otherwise be assigned into trust “retrospectively”. If it is either a CLT or PET the date of the transfer for IHT will be the date the assignment takes effect. It could conceivably be later but not earlier. Representing to HMRC or anyone else that it took place at an earlier date might well be fraudulent and so “not recommended”.

Jack Harper